Tax deductions for homebuyers

Ginger Dean

August 4, 2014

By: Ginger Dean, Home Finance Specialist

In: Finance and Legal

Some people think buying a home is a good investment - and it definitely can be. If you buy low and sell high, your home can provide a great place to live and make you some money when you sell. But what if your home could make you some money upon purchase instead of at the time of sale? Wouldn't that be great? Well, the truth is that it can.

Buying a home can offer homeowners some very attractive tax deductions. Getting a tax refund is not necessarily the best reason to buy a place - that's a pretty pricey way to find tax deductions - but if you're already planning purchasing a home, why not maximize your deductions?

Make sure your repairs are worth the cost.If your home is an investment property, you as a landlord are eligible for certain tax deductions. If you spend money on home repairs that restore the previous condition of the home you can deduct the costs on your tax return.

Keep receipts for everything. Even if you are not a landlord, you may still be able to use home improvement as a tax deduction. Homeowners are advised to keep all receipts from their projects because the expenses may decrease the taxes owed on the sale of your home come tax time.

Itemize your expenses when you file. Itemizing your deductions gives you a higher benefit than using your standard deductions. Homeowners who itemize their deductions need to complete Schedule A of Form 1040 on their tax return.

Don't forget about your mortgage interest costs. If you itemize your deductions, you will be allowed to claim the interest paid on your mortgage loan. Everyone can deduct up to $500,000 of mortgage loan interest. If you are in a couple and you file joint taxes you can deduct the first $1 million of mortgage interest paid throughout the year.

You can also deduct the cost of your annual property taxes. Property taxes are generally deductible by the homeowner during the year of purchase. The amount is proportionate to the percentage of the property they own. If you purchased the home with your spouse you can each deduct 50 per cent of the property taxes.

So what's the bottom line when it comes to buying a home and maximizing your tax deductions? Talk to an accountant before you buy your home to learn all about the available tax deductions. It's better to know in advance so you can prepare throughout the year and not scramble come April.

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